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    The Definitive Guide to Upsize Your Home

    The Definitive Guide to Upsize Your Home

    You don’t know how to upsize your home. How can you buy your next home when all of your money is tied up in your current one?

    You might be wondering about a contingent sale because it seems like the safest route because you won’t be homeless. But is it crazy to imagine that this option will cost you big bucks?

    Read: The Pros and Cons of a Contingent Purchase

    I am going to walk you through all the stuff you need in order to make this move happen. I’ll give you the strategies, the questions (and answers) and the math.

    Why do you want to upsize your home?

    No one upsizes unless they have a really good reason.  Your reason isn’t good enough if all you do is talk about getting to a bigger home. Here are some common reasons people use to overcome the inertia of their current home.

    You’re going to kill the kids. Not really. Well, maybe. Hey, us gray-haired peoples understand! Kids take up waaaaaay more space than you ever imagined. The first time you step on an errant Lego barefooted is a great time to start planning for your next home. Or you might need a yard so you can kick the kids outside to play. Momma needs her quiet time.

    The IRS sends you a handwritten thank-you note every year. “Under-Housed” means you are living far below your means and paying too much in income tax every year. The mortgage interest deduction is often the only significant tax break for most Americans. If your mortgage is small compared to your income it might be time to upsize your home

    You are the sandwich generation. Are you the primary caregiver for your children AND your parents? Combining households into one larger home can really help logistics and pocketbook.

    You have a CEO sized salary and a student-sized hovel. Seriously, you can’t take it with you. I am all about living the simple life, but there is a difference between being fiscally conservative and being business stupid. The tax and investment benefits of a larger home often outweigh the savings of a small home.

    Your lifestyle has changed. You are not the same person who bought that cute starter home all those years ago. You now work in a different location, have different social circles, or acquired new hobbies and interests. Does your home serve the life you now lead? Is it time to upsize your home to serve the life you lead today?

    Bonus Read: 55+ Homeowners, Upsize and Transfer Your Property Tax

    Can you afford to upsize your home?

    Here are a couple of real-world examples to help you see how this works.

    If Bob and Amy bought an average starter home in 2013 with 20% down and upsized to a larger home today, how would the money work? How much cash would they net from the sale and how would their monthly payments turn out? (**note – all numbers are from I-Tech MLS and all assumptions and details are below)

    How to sell a condo and buy a single-family home

    If Bob and Amy bought a 2 bedroom, 1 bath condo in 2013 they probably bought it for $258,000. If they sold that same condo at today’s average sales price of $437,000 they would net $258,000 cash.

    Then Bob and Amy buy an average upsize 3 bedroom, 2 bath single family home for today’s average price of $1,130,000. They will need to add $13,000 to the cash they got from the condo to  have a 20% down payment for the house (not too bad!) but their monthly payments will go from $1604/mo to $5642/mo for an increase of $4,038 per month. Ouch.

    How to sell a small home and buy a larger home

    It is much easier to go from a small house to a larger home. If Bob and Amy had purchased a small single-family home back in 2013 they probably paid $439,000. Today that home has an average sales price of $730,000 for net proceeds of $375,000.

    If Bob and Amy buy that same upsize single-family home for $1,130,000 they can easily put a 25% down payment with monthly payments of $5348/mo. This means they would see an increase of $3140/mo over their small home monthly payment.

    Does that sound like an impossible hurdle to cross?

    I am sorry if I burst the fantasy bubble that you can upsize with just the equity you’ve earned on your current home. Your upsize went up in value, too.

    The most sensible (and popular) thing to do is add money to your down payment. Invest savings, borrow against your retirement account or devote that recent inheritance toward your upsize plans.

    If you are reading this as a way of planning your future upsize, start working with a great financial planner. You might be surprised what you can accomplish with a plan and dedication.

    Should you sell first or buy first?

    Most people plan to trade up when they upsize their homes. This means they will sell their current home and put the proceeds of their sale into the new one. There are only three possible scenarios; buy on contingency, buy first or sell first – let’s examine each one.

    The dream scenario – buy a home contingent on the sale of your current one

    Everyone’s hope is to secure the perfect new home before committing to the sale of their existing one. It’s a great dream, but an unlikely one. Your dream home is probably popular with lots of other buyers.

    Your contingent offer will only win if you offer a lot more money than anyone else. And, if you DO win you’ll feel a lot of pressure to sell your home for a low price in order to beat the deadline.

    Buy your dream home first, then sell your old one

    I like to call this the “two home” scenario because you will likely own two homes (and two mortgages) for a period of time.

    You enter into a contract on your dream home and then put your home on the market as soon as possible. When it works out there is only a few days where you might own both homes.

    You must be able to qualify for financing while still owning your current home.

    The risk is owning two homes longer than you expected. Carefully consider how much you will pay in order to buy first.

    Sell your current home first, then buy your dream home

    I like to call this the “no home” scenario because you can be without a home for a period of time. It is the most popular scenario for most upsizers.

    Put your home on the market after you are confident that your budget is enough to buy your upsize home. As soon as your buyer is solid you can turn around and make an offer to purchase. When this scenario works out you might be “homeless” for a short time.

    The risk, here, is being homeless for longer than you expected. You might be in a short term rental or staying with relatives. You can mitigate this risk by negotiating a “rent back” from the buyer of your current home.

    Costs to consider when you upsize your home

    A larger home is obviously more costly to run and maintain. However, many people overlook several other expenses and fees associated with trading up.

    Costs to buy a home.

    The closing costs on a home purchase in Glendale Ca is about 1%. This includes taxes, escrow and title fees and basic lender fees. On top of this add about $1,000 for the most common inspections. Moving costs vary widely based on strategy – do you hire a crew that packs, moves and unpacks or do you DIY with really good friends and a rented truck? Lastly, even a brand new home needs an investment in window coverings, landscape, and furnishings. Factor into your budget money for remodeling, maintenance and/or decorating.

    Costs to sell a home

    The closing costs to sell a home are about 7%. This includes taxes, title and escrow, normal closing costs and commissions for both your own agent and the agent representing the buyer. Preparation for sale costs varies widely based on the desired outcome.

    Costs to start a new loan

    Home mortgage loans are rigged. Nearly all of your first mortgage payment goes to paying off interest and very little goes toward paying off your principal balance. Every mortgage payment gets a tiny bit better in terms of paying off your balance. When you upsize your home and get a new mortgage on you start all over again, often just as you were getting to the good part of your old mortgage.

    Increased costs of living

    When you upsize your home you upsize your monthly maintenance costs, right? Consider increased insurance, utilities, maintenance, and upkeep. Will you need to hire services you previously did your self like cleaning or lawn maintenance? If you add a pool consider increased water and energy as well as a pool servicing company.

    Increased monthly obligation

    I am sure you already thought of this because it is the most obvious, but you need to consider your increased monthly mortgage, insurance, and property tax obligations. One potential bright spot is if you are 55 years old or older you might qualify for Prop 60/90 and transfer your current property tax rate.

    Would you like to Upsize to Your Next Home?

    We can help.

    Call Kendyl Young at 818.482.1885, or text  818.946.0106
    We promise Straight Talk, no Sales Talk.

    ** information pulled from the I-Tech MLS. All information is deemed reliable, but without guarantee. 2 bedroom condo in Glendale under 1200 sf sold average sales price in was $258,000 2013 and $437,000 for YTD 2019. Single family homes in Glendale under 1200 sf sold for an average sales price of $439,000 in 2013 and $730,000 YTD 2019. An upsize home is a single family home in Glendale between 1800 – 2500 SF which sold for an average price of $1,130,000 YTD 2019.
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